Management of foreign economic activity

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There are three approaches to international management: ethnocentric, polycentric, and geocentric. Each has its advantages and disadvantages. None of these theories can be successful, however, unless managers understand completely the nuances involved in their applications.

The ethnocentric approach is one in which management uses the same style and practices that work in their own headquarters or home country. Such an approach may leave managers open to devastating mistakes, because what works in the United States, for example, may not necessarily work in Japan. There are many cases in which companies made grievous errors when they attempted to transfer their management styles to foreign countries. For example, Procter & Gamble Co. lost $25 million in Japan between 1973 and 1986 because its managers would not listen to Japanese advisors. The company ran ads for its Camay soap in which a Japanese man meeting a Japanese woman for the first time compared her skin to that of a porcelain doll. That would never happen in Japan, which is exactly what an advertising adviser told Procter & Gamble's managers. Procter & Gamble, however, ignored the advice. They assumed that if a similar ad worked well in the United States and other countries (which it did), it would also be successful in Japan, but it was not. In fact, the ad infuriated the Japanese people, who refused to buy Camay. The Procter & Gamble executives learned a lesson, but at a high cost.

In contrast to ethnocentric management is the polycentric management theory. In this approach, management staffs its workforce in foreign countries with as many local people as possible. The theory is simple: local people know best the host country's culture, language, and work ethic. Thus, they are the ideal candidates for management. This approach works well in some countries. However, in countries without well-developed economies, it may not be the best approach because the workers may not always have the necessary business acumen or management skills.

The third style of international management is the geocentric approach. This theory holds that the best individuals, regardless country origin, should be placed in management positions. This philosophy maintains that business problems are the same regardless of where in the world they occur. Therefore, competent managers who are able to apply logic and common sense to resolve them will be successful; specific cultural knowledge is not necessary. This is the most difficult of the three approaches to apply, since managers must be able to understand the local and global ramifications of the business.

The Boeing Corporation provides evidence that the geocentric approach can be successful. When sales of its 737 plane dropped precipitously in the early 1970s, Boeing's senior management asked a group of engineers to bolster sales of the plane. Management indicated that if they were unable to increase sales, production would be discontinued. The engineers seized the opportunity. Their first step was to examine foreign markets for the aircraft. They recognized that what attracted buyers in the United States may not necessarily lure foreign buyers. So, they visited different countries to determine which characteristics might be useful to incorporate into the redesign of the 737. They found many differences in flight operations. For example, many foreign airports, especially those in developing countries, had shorter runways than those in the United States. Moreover, many were constructed of softer materials than concrete, the standard material used in the United States. As a result of their study, the engineers redesigned the plane's wings to allow for shorter landings on asphalt runways and altered the engines so takeoffs would be quicker. Finally, they designed new landing gears and switched to low-pressure tires. Shortly after they made the changes, 737 sales rose dramatically, and so did sales of Boeing's other models. In fact, the 737 eventually became the largest selling commercial jet in aviation history. The key to the engineers' success lay in their ability to think globally and assess the business environment in different parts of the world.

Answer the questions:

1.How many approaches to international management are there?

2.What is ethnocentric approach?

3.What is polycentric approach?

4.What is geocentric approach?

5.What were the steps to increase the sales done by the Boeing Corporation?

LESSON 2